With the presence of Andrea Ottomanelli Magovern, acting branch chief of the Division of Investment Management at the U.S. Securities and Exchange Commission (SEC), the regulatory discussion at the PLANADVISER National Conference focused on SEC actions.
Ottomanelli Magovern gave attendees an overview of money market fund reforms adopted by the SEC in 2014. The rule amendments require providers to establish a floating net asset value (NAV) for institutional prime money market funds, which will allow the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets. The reform also provides non-government retail money market funds with new tools, known as liquidity fees and redemption gates, to address potential runs on fund assets.
According to Ottomanelli Magovern, the establishment of a floating NAV addresses first mover advantage. During the financial crisis of 2008, investors had an incentive to get out of money market funds at the first sign of trouble because those who didn’t were left to make up the difference between the $1.00 per share published price of the funds and the shadow price, she explained. “We found that most of these first movers were institutional funds, so we want to steer the reform in that direction,” she said. Ottomanelli Magovern added that a floating NAV also provides risk transparency; investors can see there is risk with a share value that goes up and down.
David N. Levine, a principal at Groom Law Group, Chartered, told attendees institutional investors, including retirement plans, are starting to discuss the implications of the money market fund reform, and many times advisers are leading the discussions. They are helping plan sponsors review their current money market funds and determine whether they need to move to government funds.
Ottomanelli Magovern said compliance with the news rules is expected by October 14, 2016. “About two-thirds of retirement plans have money market funds,” she said. “We want to get the word out because we’re not sure plan sponsors are focused on it.”NEXT: SEC enforcement priorities
Ottomanelli Magovern told conference attendees other priorities for the SEC’s investment and enforcement divisions include getting better disclosures from registrants; looking into liquidity risk management—how derivatives and funds invested in derivatives are managed; and looking into transition and succession planning for advisers.
One notable SEC action is the ReTIRE initiative. Levine said “the SEC marches to its own drum, but there are a lot of similarities” between this initiative and the Department of Labor’s (DOL) proposed fiduciary rule. But, the ReTIRE initiative looks at things like, “what is a reasonable basis for adviser recommendations, and who is responsible for oversight?” it also looks into deceptive marketing practices, according to Levine.
Speaking of the DOL fiduciary rule, both Levine and Jamie Fleckner, a partner at Goodwin Procter LLP, told conference attendees they should expect the DOL to move forward on it. “They may back off on some disclosures, but they will keep the focus on unconflicted advice,” he said, adding that there may, for example, be some relief concerning rollovers for those advisers affiliated with product providers. “But, not everyone will like the changes.”
Fleckner said advisers will adapt to the new environment. He noted that there was a similar rule in the UK, and many advisers moved to using a flat fee, which made obtaining advice more expensive for smaller plans. But, “there are a lot of small plans out there,” Fleckner said. “They will attempt to continue to get advice, and the DOL will support some of those attempts.”
Levine thinks someone will come up with a model that works, perhaps a combination of robo and live advice. But, he also thinks the industry will see advisers focus more on wellness education, “with some advice for the right price thrown in.”